A scary strategic problem - no oil

[brihard]

If this is true, this single formation has the potential to crash world oil prices. This can have positive effects (marginalizing the Middle East and cutting off major revenue sources to Russia and other hostile nations), as well as negative effects (Canada's multi billion dollar investment in the Oil sands will have been effectively negated, and our reliance on oil revenues will also negatively impact the Canadian economy until substitute areas are developed). Since the formation is mostly under Federal lands, it is off limits for exploration under the current Administration, but a future administration can open it for exploration at the stroke of a pen (and the markets will react with astonishing speed):

http://www.powerlineblog.com/archives/2012/05/we-are-swimming-in-oil.php

Thucydides,

In short, no it doesn't have that potential.

Green River is a shale oil formation, like the Bakken formations in Alberta/Sask/Montana/North Dakota, or the Devonian-Mississippi in the eastern U.S. Shale oil is more expensive to develop than conventional oil plays. It's subject to a great deal of scrutiny and environmental lobbying, and there are technological and political risks that make it a riskier capital investment than conventional oil plays. As a result, it's not economically viable below certain per barel prices. Further, these plays take a long time to prove, to develop, and to bring online. Only sustained high oil prices allow a permissive environemnt in which to attract investment capital.  It's really not dissimilar in the larger sense form the oil sands.

If a president made the 'stroke of a pen' tomorrow, we might see meaningful production in eight to ten years. And production would only expand at a rate sufficient to keep oil prices pretty much steady.

 

[FSTO]

Thucydides,

In short, no it doesn't have that potential.

Green River is a shale oil formation, like the Bakken formations in Alberta/Sask/Montana/North Dakota, or the Devonian-Mississippi in the eastern U.S. Shale oil is more expensive to develop than conventional oil plays. It's subject to a great deal of scrutiny and environmental lobbying, and there are technological and political risks that make it a riskier capital investment than conventional oil plays. As a result, it's not economically viable below certain per barel prices. Further, these plays take a long time to prove, to develop, and to bring online. Only sustained high oil prices allow a permissive environemnt in which to attract investment capital.  It's really not dissimilar in the larger sense form the oil sands.

If a president made the 'stroke of a pen' tomorrow, we might see meaningful production in eight to ten years. And production would only expand at a rate sufficient to keep oil prices pretty much steady.

Actually Bakken is partially located in Manitoba not Alberta.

 

[a_majoor]

While it is true that there are technical reasons to expect production from shale oil plays to be slow, the forward markets will react with extreme speed. President George W Bush signed an executive order opening up drilling in 2008 which collapsed the price of oil within five months, despite the fact there was no appreciable production due to new drilling during that time frame.

The reason which will trump other all other factors is American domestic politics. With the current US economy essentially stagnant, low workforce participation and 10% unemployment (U3), developing the formation would provide a desperately needed economic boost to any Administration. Coupled to that is the bonanza in oil royalties once the play is developed, which would put a huge dent in the $15 trillion + debt. Restoring finances and the AAA credit rating of the United States will also pay long term political dividends.

There will be considerable political pressure to develop the formation, and regardless of who wins this election, I think it will more than overcome the pressure from "Green" crony capitalists and environmental groups.

 

[brihard]

FTSO, sorry- you're right. The Exshaw formation's been dubbed the 'Alberta Bakken' due to the similarities, but you're correct that they're distinct.

Thucydides- I agree that these formations will be developed. I'm not so sure that we'll see a crash in oil futures prices. Bush's lifting of the offshore drilling ban opened up development of conventional offshore oil that was not dependent on high prices to be feasible. Permitting unconventional/tight oil plays would simply be a first step. Those plays would not be economical if oil prices dropped precipitously; consequently there's no impetus for a crash in oil prices. Such a crash would in and of itself eliminate the market conditions making such increased production and secure domestic supply possible in the first place. There may be a slight drop in price, but nothing precipitous.

 

[DBA]

FTSO, sorry- you're right. The Exshaw formation's been dubbed the 'Alberta Bakken' due to the similarities, but you're correct that they're distinct.

Thucydides- I agree that these formations will be developed. I'm not so sure that we'll see a crash in oil futures prices. Bush's lifting of the offshore drilling ban opened up development of conventional offshore oil that was not dependent on high prices to be feasible. Permitting unconventional/tight oil plays would simply be a first step. Those plays would not be economical if oil prices dropped precipitously; consequently there's no impetus for a crash in oil prices. Such a crash would in and of itself eliminate the market conditions making such increased production and secure domestic supply possible in the first place. There may be a slight drop in price, but nothing precipitous.

Oil sands, oil shale etc while more expensive than a lot of conventional production is still in the $30-$40/barrel range which provides solid profit even if oil drops to $50-$60/barrel. Add in less risk of getting tangled in regional wars (middle east) or nationalizations (South America) and it's a pretty solid investment to hedge against riskier and potentially more profitable production sites.

 

[a_majoor]

An interesting analysis on how these new energy plays are affecting Canada. The endless regulatroy purgatory of the McKenzie valley pipeline project may now end because US Shale gas has collapsed the price of natural gas. Notice what has happened to the Trans Canada pipeline (although it may now be converted to move oil from the oil sands).

If this is causing such turmoil in Canada, imagine the changes happening throughout the world as unconventional plays are brought on line and traditional markets get upended:

http://opinion.financialpost.com/2012/05/30/peter-foster-energys-better-mousetrap/

Peter Foster: Energy’s better mousetrap
Peter Foster  May 30, 2012 – 7:36 PM ET
 
Shale gas boom results from reducing restrictions on the private sector

Government energy strategies are described as “road maps to the future.” They usually wind up speeding dead-end technologies into the cul-de-sac where they belong, while the private sector builds better mousetraps up unanticipated paths. This truism is confirmed as government-backed wind and solar industries flag, while unconventional gas production booms.

The International Energy Agency this week confirmed that unconventional gas has implications that reflect its technology of hydraulic fracturing, or “fracking:” They are earth-shattering. According to the IEA’s chief economist, Fatih Birol, who spoke on the release of a new IEA report, Golden Rules for a Golden Age of Gas: “Unconventional gas will fracture the status quo, and will be a complete game-changer with major geopolitical implications.”

The IEA released its first golden age of gas report almost a year ago. This version appears aimed at burnishing the IEA’s credentials as a paid-up member of the UN/NGO sustainability cabal, stressing that new gas producers need “social licence.”

In fact, no rules could satisfy environmental radicals, who are less than delighted at the prospect of a new fossil-fuel bonanza just as their climate crusade is foundering. One might imagine that the green warmists would be happy with the reduction in carbon-dioxide emissions attached to the gas revolution. Gas-fired plants have half the emissions of coal-fired units. Another recent IEA report found that the U.S.’s rapid switch to unconventional gas had led to a fall of 450 million tons of carbon-dioxide emissions in the past five years, more than in any other country. However, a key part of the radical Agenda is that all forms of fossil fuels are evil (even more so their corporate facilitators).

Green radicals have sought to stir hysteria about the potential dangers of fracking via the usual biblical shopping list, warning of earthquakes and flaming tap water, but the audience for catastrophism seems to be in decline.

The IEA sings from the catastrophist hymnal, but still projects that fossil fuels will dominate global energy supply for decades to come. The U.S. Department of Energy’s Annual Energy Outlook recently also projected that Mr. Obama’s “energies of the future” would climb — over the next quarter-century — from 7% of U.S. energy supply (less than the early 1980s) to a whopping 11%. Fossil fuels will still account for 77%.
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According to the IEA golden gas report, as global production of unconventional gas (mainly from shale, but also coal-bed methane and other “tight” forms) triples, to 1.6 trillion cubic feet by 2035, natural gas will become the world’s No. 2 energy source after oil, accounting for a quarter of total energy demand.

Such technological innovation does not come without turmoil for the private sector. The gas boom has led to a collapse in North American prices and threatens existing infrastructure, in particular TransCanada Corp.’s giant west-to-east pipeline system. This government-promoted line (which led to the fall of the Liberal government that backed it in the 1950s) was once seen as as much of a “nation-builder” as CP Rail. However, as CP’s board recently discovered, this is not a good time for nation-builders to be resting on their laurels.

As the Post’s Claudia Cattaneo and Jameson Berkow recently noted, TransCanada’s declining throughput has led to soaring tolls that have angered producers and threaten a “death spiral.” Much cheaper gas is now available from U.S. sources in the Northeast. The shale gas revolution also appears to cement the tombstone over the Mackenzie Valley pipeline, and threaten the further decline of Canada’s once-lucrative U.S. export market.

Canadian industry has responded with a speed and ingenuity that contrasts dramatically with the policy inertia of jurisdictions such as Dalton McGuinty’s Ontario, which is still dialled into its own wind and solar death spiral. Canadian producers are aggressively seeking liquefied natural gas (LNG) exports via projects such as the Kitimat terminal in B.C. TransCanada has proposed changing at least part of its west-to-east system to oil from natural gas, which would theoretically ease the problem of oil sands production bottled up by lack of conduits. The company has already begun the transition from gas to oil with its proposed Keystone XL line to the Gulf Coast, which for the moment remains embroiled in presidential election politics.

Although there will be individual losers among companies and projects, the prospect of booming shale-gas supplies and new LNG exports provides a classic example of the overall win-win nature of innovative markets. The revolution will boost depressed prices in North America while lowering them in Asia, but will leave North American consumers with prices well below traditional levels. This means more affordable home heating, cheaper electricity and lower manufacturing costs.

For those seeking further perspective on the history of regulatory wisdom versus market innovation, it is perhaps worth remembering that 40 years ago Canadian authorities — vociferously supported by energy nationalists — were restricting natural gas exports because they thought we were running out of the stuff. The U.S. faced a supply crisis entirely due to price controls and restrictions on interstate shipping.

Those who claim that Canada needs a comprehensive energy strategy might note that the most significant policy innovation of the past 35 years has been the abandonment of price controls and trade restrictions, and increased reliance on private innovation and markets. The unconventional gas boom is a wonderful example of the results.

 

[a_majoor]

A vast amount of energy is lost in inefficient conversion process, transmission losses and so on. A 10% gain in efficiency is actually quite huge (consider that most baseline powerplants generate multiple megawatts or even gigawatts of energy). Sadly for the "green" movement, this single action has created more electrical energy than all the current fleets of windmills. Too bad the author is so focused on the "renewables" rather than the nuts and bolts of incentivizing the current fleet of generating stations to be as efficient as possible

http://www.washingtonpost.com/blogs/ezra-klein/post/why-we-ignore-low-tech-fixes-for-the-climate/2012/06/01/gJQAVUUm7U_blog.html

Why we ignore low-tech fixes for the climate
Posted by Brad Plumer at 01:00 PM ET, 06/02/2012 TheWashingtonPost

Whenever the conversation turns to greening the world’s energy supply, a lot of the ideas tend to emphasize new and futuristic sources of power. Build more wind turbines. Stack up more solar panels. Make sure fresh coal plants don’t get built.

A climate savior? (Michael S. Williamson/The Washington Post) But Catherine Wolfram, an economist at UC Berkeley’s Haas School of Business, says that we too often ignore simpler solutions, such as wringing more efficiency out of our existing fossil-fuel and nuclear plants. Many of those power plants, after all, are likely to stick around for decades to come. And there are quite a few minor tweaks that can be made to these plants that can cut greenhouse-gas emissions dramatically — tweaks that can have as much impact as building hordes of new wind farms or solar panels.

Here’s an example: In a recent column for Bloomberg, Wolfram described what happened in the 1990s after some U.S. states began deregulating their electricity sectors. Utilities sold off their nuclear reactors to private operators. And, Wolfram found in a recent paper with Lucas Davis, electricity output at these newly privatized reactors increased 10 percent compared with those that stayed in the hands of tightly regulated utilities. That small boost in carbon-free power, she notes, “helped offset more greenhouse gas emissions in the 2000s than all of the wind and solar generation in the country combined.”

How did these nuclear plants magically become so much more effective? It all comes down to incentives. After deregulation, Wolfram told me in a phone interview, plant owners could now make a profit by selling as much electricity as possible on the wholesale market. That gave the owners incentives to make small tweaks like reducing the amount of time that the reactors needed to be shut off for refueling. That involves a lot of tricky organizational maneuvers, and until deregulation, operators rarely felt the need to figure it out.

And there are all sorts of small tweaks like this that get ignored because of misaligned incentives. Even today, Wolfram notes, many U.S. power plants still don’t have incentives to operate as efficiently as possible. There are many coal plants in the Southeast that are regulated under “cost-of-service” rules, in which power plants can pass their fuel costs onto consumers. That means there’s less reason to operate as efficiently as possible. And a carbon tax wouldn’t necessarily fix this — not if utilities could just pass costs onto consumers.

Bruce Buckheit, a former EPA official, concurs. He notes that the efficiency of the U.S. coal fired fleet has remained flat since the 1970s. And a variety of research (pdf) suggests that small improvements in operations could boost the overall efficiency of the U.S. coal fleet by as much as 5 percent. (Wolfram, for instance, has found that a coal plant’s efficiency can vary as much as 3 percent depending on the skill of the guy sitting at the controls.) That may not sound like much, says Buchkeit, but spread across hundreds of coal plants, there are real carbon savings to be had here.

So would more deregulation produce these savings? Perhaps. Another possibility, though, is that the EPA could start regulating carbon emissions from existing fossil-fuel plants — something that remains a possibility after the agency set limits on emissions from new plants this year.

Meanwhile, Wolfram says, the place where truly significant gains could be had are in China and India. Both countries are building coal plants at a staggering pace, with coal accounting for 70 to 80 percent of their electricity. For the most part, their plants are often newer and more efficient than coal plants in the United States. But plant owners in these countries don’t necessarily have incentives to operate these plants as efficiently as possible.

“Back-of-the-envelope calculations,” Wolfram estimates, “suggest that improving the fuel efficiency of Chinese coal plants by about 5 percent would offset more carbon emissions than all of the non-hydro renewable energy in the world.”

That’s a big deal. It won’t, by itself, get carbon emissions low enough to avert severe global warming. We’ll likely still need all those wind turbines and electric cars and other fancy low-carbon technologies that garner all the headlines. But those mundane carbon-belching coal plants and inefficient nuclear plants that will likely stick around for years to come shouldn’t get ignored, either.

 

[GAP]

Israel’s Undersea Gas Bonanza May Spur Mideastern Strife
By Meghan L. O’Sullivan May 21, 2012 6:21 PM CT
Article Link
   
Egypt’s decision last month to stop selling natural gas to Israel could be a harbinger of increasingly confrontational Egyptian-Israeli relations, an indication of a worsening Egyptian economy, or both.

In any case, the end of the arrangement, which provided 40 percent of Israel’s supply, suggests the need for more Israeli creative thinking and assertive diplomacy -- not with Egypt but, counterintuitively, with Turkey and Lebanon.

The Egyptian move would have raised greater concerns just a few years ago than it does today among Israelis, who import 70 percent of natural gas and all of their oil. Then, Israel saw no alternative to a near-complete dependence on other countries to meet its energy needs.

Discoveries of large underwater gas fields in the eastern Mediterranean, however, have changed Israel’s energy prospects almost overnight. In 2009, a consortium of U.S. and Israeli companies discovered the Tamar field about 50 miles off the Israeli coast, with an estimated 8.3 trillion cubic feet of gas. A year later, a similar consortium discovered Leviathan, a huge field nearby estimated to hold 16 trillion cubic feet of natural gas.
Strategic Game-Changers

These finds, and the prospect of more in adjacent waters, could be strategic game-changers for Israel. A 2010 U.S. Geological Survey study estimated that the Levant Basin off the coast of Syria, Lebanon, Israel and the Gaza Strip could hold about 1.7 billion barrels of recoverable oil, 122 trillion cubic feet of recoverable gas and 5 billion barrels of natural gas liquids. If true, Israel could meet its own electricity needs in the future and possibly become a net exporter to a gas-thirsty region. This would bring economic and political benefits as well as regional clout at a time when Israel’s regional standing is more uncertain than it has been for decades.

But, because nothing is simple in the Middle East, there is also a real threat that these gas discoveries could serve as a spur for conflict rather than economic growth. The Tamar and Leviathan discoveries are generally accepted to fall within Israel’s exclusive economic zone in the Mediterranean, although Lebanon originally insisted that Leviathan crosses into its waters. Exploration continues, and it could be only a matter of time before a field is discovered straddling contested boundaries.

Imagine a scenario in which a new field is found in Israeli waters but bleeds into the 330-square-mile disputed area where Israel and Lebanon’s claimed economic zones overlap. It could also run into Cypriot territorial waters. Suddenly, the world could face a situation in which Turkey insists that the field not be developed until the problem of a divided Cyprus is resolved, while Hezbollah threatens to take military action against what it sees as an Israeli effort to commandeer Lebanese national resources. (In December 2010, Hezbollah stated that it wouldn’t allow Israel to “plunder Lebanon’s maritime assets.”) The U.S. would be pulled in two directions -- one by its NATO ally Turkey, the other by Israel.
More on link

 

[a_majoor]

Israel is already working quietly with Greece and Cyprus in planning the exploitation and use (including exports) of this discovery. Some of this information may be found in the "No Oil" superthread.

 

[GAP]

Then that's where that post should be...I'll contact a mod...

 

[a_majoor]

Diane Francis on how the new face of natural gas is going to affect Canada. Our "energy superpower" status may be in doubt if natural gas (especially frcked shale gas) and liquid fuels processed from natural gas (using evolved versions of the FT process, also pioneered by Shell) displaces petrolium as a fuel source for surface transport as suggested here. Vast amounts of fracked natural gas has already cut Canadian gas export sales. Moving truck traffic, trains, and possibly shipping to these kinds of fuel could put a huge dent in the demand for oil. Canada's oil patch might be headed for rough times:

http://opinion.financialpost.com/2012/06/08/shell-is-changing-the-energy-game-and-in-a-big-way/

Shell is changing the energy game — and in a big way
Diane Francis  Jun 8, 2012 – 3:07 PM ET





This week, Royal Dutch Shell PLC began rolling out a strategy that will dramatically change the energy world.

With revenues larger than the economies of Alberta, Saskatchewan and British Columbia combined, Shell is betting big on natural gas to replace oil as the world’s foremost transportation fuel.

This is the game-changer.

It was only a handful of years ago when small independent oil companies proved that a technology called fracking worked and was able to blow up deep shale rocks to release natural gas. They sold out to majors who, in turn, sold reserves to super-majors like Shell that have fuel refining and retailing expertise and operations.

There have been pilot projects involving the use of natural gas, liquefied or compressed, as fuel in trucks, but this week Shell made a big move.

The giant announced a partnership with an American gas station operator to supply liquefied natural gas (LNG) for heavy-duty trucks at 100 fuelling stations across the U.S. by 2013.
The company will build LNG plants to service this chain and others that will follow.
In Canada, Shell has made a similar deal with a truck-fuelling chain along 1,600 kilometers of highway between Fort McMurray and Vancouver. Shell has called this its “Green Corridor project”.

The liquefied, or frozen, gas is an ideal transport fuel for large trucks and compressed gas for smaller vehicles. Roughly 92% of transportation fuels are petroleum-based, but could be replaced by natural gas, compressed or liquefied. This will take years, but Shell’s move breaks the Catch-22 that has slowed adoption of gas.
Related

Gas is greener too and the United States has a glut — one century’s supply of gas at current consumption rates. This, on top of the glut of conventional gas in Canada and the U.S., has driven natural gas prices down to the point where fuel switching makes sense. Shell has made its move because it doesn’t expect a rebound in gas prices anytime soon, and the company’s gas production outpaced oil production in 2012 for the first time in its history.

The shale gas phenomena is going to primarily impact oil but also the coal industry. Recently, three large power plants in the U.S. announced they will close and generate power from natural gas.

Eventually, Shell and others will build out a complete infrastructure to offer LNG, and possibly, CNG, to all trucks.

The use of LNG is limited to big vehicles because the gas must be kept at minus 162 degrees Celsius and only large-scale fuel-ups by big trucks would justify the additional cost of providing special coolers at filling stations.

Shell is going to roll out this strategy around the world. An LNG initiative in gas-rich Indonesia was just announced by Shell.

“We see opportunities for a concept like this one in other areas of the world as well,” said Jose-Alberto Lima, Shell’s vice president for LNG and gas sales in the Americas.

Shale gas deposits exist all over the world, in France, Poland or Ukraine in Europe and in China and Indonesia in Asia.

Plans are to refine and sell LNG as fuel for trains, ships and to power large engines used in mining or manufacturing. Engines have been developed to run on compressed natural gas (CNG) or LNG. The CNG is used by smaller vehicles and requires thicker fuel tank walls to contain the pressure. But LNG is better for huge trucks. Despite this, some large trucking firms in the U.S. are using CNG in their fleets already.

The desirability of gas as a transportation fuel has been a crusade for several years by legendary oilman T. Boone Pickens. He has championed natural gas as a means of cleaning up the environment and also eliminating foreign oil imports. And he has lobbied for tax breaks that he believes will lead ordinary motorists to switch to gas from gasoline. President Barack Obama backed Picken’s proposed tax breaks and in January said “we, it turns out, are the Saudi Arabia of natural gas.” But the breaks fell victim to election politics and Congress narrowly defeated the tax proposal in March.

Even so, Shell and others are betting heavily that the breaks will happen and, even if delayed, won’t matter given the long-term price scenario for gas compared with oil. The ramifications of Shell’s initiative, or tax breaks, would not be good news for energy exporters like Canada.
Shale gas has lowered prices, but in the past five years the large volumes being produced in the U.S. have sliced Canada’s gas exports to the U.S. by half. Worse yet, if gas replaces oil as a fuel too, and its sister-fuel shale oil continues to balloon in production levels, Canada’s oil sands export ambitions may have to be trimmed too.

 

[a_majoor]

Interesting opportunity as Canada and Israel combine forces to develop Israeli oil shale and tight gas. Israeli energy independence would make things more secure for our ally and the outpost of liberal democracy in the Middle East:

http://business.financialpost.com/2012/06/22/canada-moves-to-strengthen-energy-ties-with-israel/?__lsa=ba7381ea

Canada moves to strengthen energy ties with Israel
Jameson Berkow  Jun 22, 2012 – 4:56 PM ET | Last Updated: Jun 22, 2012 5:03 PM ET

Chris Wattie/Reuters
“For [Israel], obviously energy security is a critical strategic issue. I think it is for every country, but for them in particular,” Joe Oliver said.

CALGARY • Canada is looking to strengthen energy ties with Israel in a move that could help the Jewish state alter the balance of oil power in the Middle East.

Natural Resources Minister Joe Oliver left for the country on Friday. His trip will be focused on pitching Canada to his counterparts in government, oil company executives and leading academics as an ideal partner to help Israel develop its newly discovered bounty of unconventional oil and gas.

“Our presence in energy there, it creates a potential that did not exist before,” Mr. Oliver said in an interview.

‘Our presence in energy there, it creates a potential that did not exist before’
Since its founding six decades ago, multiple failed exploration attempts have led many to conclude the country, just a third larger than Prince Edward Island, was devoid of any significant energy resources.

But the discovery last year of a field 30 kilometres southwest of Jerusalem estimated by the London-based World Energy Council to contain up to 250 billion barrels of shale oil, together with 16 trillion cubic feet of natural gas found offshore, have suddenly put Israel’s name on the energy map. The oil find rivals global oil superpower Saudi Arabia’s 260 billion barrels in proven conventional reserves and was publicly dubbed “the equivalent of Saudi extra-light” by Harold Vinegar, former chief scientist for Royal Dutch Shell.

At minimum, it could mean energy independence for Israel. The country currently imports nearly its entire oil supply mostly from Russia and the former Soviet bloc. Several times throughout history and as recently as the 2006 Hezbollah conflict, those supplies have been blocked off, spawning fuel shortages.

“For them, obviously energy security is a critical strategic issue. I think it is for every country, but for them in particular,” Mr. Oliver said. “There has been talk, and this isn’t a prediction, but there has been discussions of them maybe even being an exporter.”
Canada, meanwhile, has led the development of shale technology, a costly and complex process.

“There are Canadian companies, Canadian science and technology which might be able to be helpful to them,” Mr. Oliver said.

Michael Byers, a political science professor at the University of British Columbia who holds the Canada Research Chair in global politics, said the impact to the region would have been far more dramatic had Israel discovered those resources 40 years ago.

Today, “the most significant impact will be in Israel’s comfort level, [but] that is a significant factor in a dangerous and unpredictable part of the world,” Mr. Byers said.

A free trade agreement has been in place between Canada and Israel since 1997, though despite subsequent expansions it still lacks provisions for the transfer of services, investment or government procurement. Ottawa first announced plans to “modernize” the agreement in 2010 and Mr. Oliver stressed time is of the essence.

“In some cases there are contracts that are going to be signed or are being signed as we speak that could leave us out of markets,” he said, adding the global energy picture in 10 years is “going to look very different and we need to stay ahead of the curve.”

“If we are nimble we could get there in time.”

Bob Schulz, professor of petroleum land management at the University of Calgary’s Haskayne School of Business, said the possibility of Canadian technology and investment going to Israel “would certainly change the [political] dynamics of the Middle East,” in that energy revenue would give it the means to finance much of its own defence instead of continuing to rely heavily on Western support.

If the plan is to maximize output, then Mr. Schulz said Canada’s energy producers could face even lower oil prices as a result of the jump in global supply.

“If I were a producer I’d want to talk to the minister when he got back and try to figure out what Israel’s plans are,” he said.

With the environmental debate over shale raging in Israel just as hard as it is here, those plans may require more than one state visit to learn.

 

[Scott]

There's a lot of technical knowhow commuting between Canada and Israel, as well as Scotland and Israel, right now. Everyone I have spoken to says their reserves are the real deal.

 

[a_majoor]

The inversion of the "No oil" trope will have some very interesting long term fallout in the global political and economic systems. Some of these will not be to our liking, but best to be prepared:

http://blogs.the-american-interest.com/wrm/2012/07/08/the-energy-revolution-part-one-the-biggest-losers/

The Energy Revolution Part One: The Biggest Losers
Walter Russell Mead

Over the past year, we’ve been watching a geopolitical revolution get underway. It’s much bigger and more consequential than the Arab Spring, though the legacy media are giving it much less play. It will rearrange the global chessboard, improving the position of some powers, weakening others. It is a powerful boost to American power, reducing America’s strategic and economic liabilities while adding considerably to its assets. And it dramatically changes the long term outlook for, among other things, the US dollar. In line with Via Meadia‘s policy of trying to focus attention on the most consequential events of the time, we will be following this story as it unfolds, looking at the implications of the shifts now underway for world politics, the US economy, our domestic politics, and the green movement.

While the chattering classes yammered on about American decline and peak oil, a quite different future is taking shape. A world energy revolution is underway and it will be shaping the realities of the 21st century when the Crash of 2008 and the Great Stagnation that followed only interest historians.  A new age of abundance for fossil fuels is upon us.  And the center of gravity of the global energy picture is shifting from the Middle East to… North America.

The two biggest winners look to be Canada and the United States. Canada, with something like two trillion barrels worth of conventional oil in its tar sands, and the United States with about a trillion barrels of shale oil, are the planet’s new super giant energy powers. Throw in natural gas and coal, and the United States is better supplied with fossil fuels than any other country on earth. Canada and the United States are each richer in oil than Iraq, Iran and Saudi Arabia combined.

Further bolstering America’s new geopolitical edge, the rest of the western hemisphere is also rich in oil. Venezuela is now believed to have more oil that Saudi Arabia, and Brazil’s offshore discoveries make it a significant factor in world oil markets as well.

China is another winner, though on a smaller scale. China has the second largest shale oil reserves in the world, estimated at about half the size of America’s. This puts China in the Saudi class as well, but given the anticipated growth in China’s economy, its shale oil wealth will reduce but not end its need for energy imports.

The other important change in the new world energy picture is one I wrote about earlier this week: Israel’s potential emergence as a major oil and gas producer. With trillions of cubic feet of natural gas, and potentially as much as 250 billion barrels of recoverable shale oil, Israel may be on the verge of joining the wealthiest Arab states as a world class energy producer.

These changes won’t take place overnight, but they are coming faster than many understand. US domestic oil production is up almost half a million barrels a day thanks to North Dakota, and the surge in US natural gas production is already changing international trade patterns. More change will come.

The Biggest Losers

If the US, Canada and Israel are the likeliest big winners, the biggest losers in the coming shift will be the Gulf petro-states and Russia. Their Gulf losses aren’t going to be economic; the Gulf  will still have the world’s cheapest oil to produce and so its oilfields will be the most profitable at any given price point.

Russia, on the other hand, is going to have a harder time. Its oil and gas are more expensive to produce and so Russia’s profit margins are likely to fall.

But regardless of the simple economic impact, in different ways and different degrees the Gulf countries and Russia are going to lose a lot of the political advantages that their energy wealth now gives them. They will have less ability to restrict supply and to manipulate prices than they have had in the past. Oil and gas are going to be less special when supplies are more abundant and more broadly distributed.

The unexpected success of the economic sanctions on Iran show how this process works. Rising production in Iraq, Saudi Arabia and the United States enabled the world to do something most people would have thought impossible in the golden age of OPEC. Iran’s oil sales have been cut by something like 40 percent even as world crude prices fell. Iran’s Supreme Leader believed that the world needed his oil so much that the US could never get the Europeans and others to agree to serious sanctions. He was like Jefferson Davis in 1860, who believed that Britain and France needed Confederate cotton so badly that they would force the North to recognize Confederate independence.

The Supreme Leader, like Davis, was wrong. The world survived without Confederate cotton, and the world is surviving with less oil from Iran. In fact, even as Iranian production declined, world oil prices fell.

What Iran is discovering today, others will feel tomorrow. Since the 1970s, the states on both sides of the Gulf have been central to all kinds of global issues, and the great powers have focused enormous amounts of time and attention on their wants and needs. As the energy revolution proceeds, they won’t completely sink into insignificance (and the US concern to protect the independence of countries like Saudi Arabia, Kuwait and the rest won’t disappear), but the days when the world hung on every word that fell from the lips of OPEC are gone.

More, the political importance of the Gulf derives in part from the intersection of energy politics and national policy in many European countries. In places like Italy, France and Greece, national oil companies have much greater power in national politics than they do in the US. (The US has more oil companies, and there are more corporate and regional interests competing against what the oil companies want.) The ability of the Gulf countries to make or mar the fortunes of foreign oil companies has been an important source of political power for them. This power won’t go away, but it won’t be the same. There are lots of new places to look for oil these days, and with more countries interested in attracting international investment, the balance of power will shift from resource rich countries to firms with the capital and skill to turn those resources into revenue.

Coming back to Russia, the biggest threat to Moscow’s hopes for rebuilding its power based on energy resources comes from the discovery of huge natural gas reserves under the eastern Mediterranean seabed. Russia can and will do what it can to join in the exploitation of these resources; Greece, Cyprus and Israel are all willing to cooperate with the Russians when it comes to exploitation and processing.

So Gazprom won’t starve — but it could lose its ability to stop the flow of natural gas into western Europe. New pipelines will be built from Greece north and east and while a friendly Greek government and a strong capital position for Russian companies in the Greek gas business could give Moscow an edge, the Greeks are unlikely to allow Russia to turn Europe’s gas taps on and off at will. Additionally, new terminals on the Atlantic coast will be built to take LNG shipments from the US. As the world gains experience with fracking technology, and the carbon benefits of natural gas as opposed to coal grow more obvious, look for Europe to do more to explore its own considerable potential to develop gas fields. Russia will continue making money selling gas and oil to Europe, but the political consequences of this trade will likely disappoint.

Another group numbered among the losers: energy states who finance unorthodox economic policies and anti-US foreign policies on the basis of their oil wealth. It will still be easier for the president of Venezuela to thumb his nose at the US and spend money on programs that build up his political strength at home than, say, for the president of Guatemala to do that, but as world energy supplies continue to flow, both the financial and the political benefits of having a lot of oil are going to diminish. Hugo Chavez’ successors are likely going to have to watch their wallets and watch their words a little more closely than the Great Bolivarean has done.

These changes won’t materialize overnight. We are so far seeing only the first stages of new energy geopolitics. But one way to begin getting your head around the new geopolitics is to think about a world in which Kuwait matters less, and Alberta more.

Over the next couple of weeks I’ll be coming back to this subject, looking at some other aspects of this big, complicated set of changes coming down the pike: how the change will affect the winners and world politics as a whole, what the environmental and economic consequences are likely to be, and how politics in the US may change.  And going forward, Via Meadia will do its best to follow the energy revolution in the news of the day — keeping an eye both on the progress or the lack of it at bringing the new potential sources online and on the ways world politics shift in response.

 

[exabedtech]

Yes, we have tons of unconventional fossil fuels, but our need to exploit these type of resources speaks loudly to the fact that fossil fuels are finite in nature. 
The question isnt whether or not we will ever reach a point where fossil fuels become so rare that they are no longer economical to produce, but when.

Plenty of crackpots figure peak oil will occur in the next few years if it hasnt already.  I doubt those folks have really factored in the magnitude of oilsands/oilshale, but peak oil still has to occur at some point since the planet isnt producing more of it... or if it is, certainly not at the same rate that we extract it.  Reaching a peak is a mathematical certainty.  Determining when that might happen is pure speculation with some footing in past performance.

If not in the next 50 years, will it be in 100?  200? 1000?  We've been walking this planet for millions of years, using oil for 170 or so years.  I'm no alarmist, but clearly it won't last forever and I don't see anything else out there that is anywhere near ready to take over.

 

[a_majoor]

Walter Russel Mead with Part 2 of his essay on how the new oil bonanza will affect America and the world. Some interesting notes on how he sees the growth of the energy sector as having changed Canada. The energy bonanza is actually such a huge story and covers so many different areas that it could have been posted in the "Grand Strategy for a Divided America" thread, the US Economy thread or the 2012 election thread:

http://blogs.the-american-interest.com/wrm/2012/07/15/energy-revolution-2-a-post-post-american-post/

Energy Revolution 2: A Post Post-American Post

Walter Russell Mead

Forget peak oil; forget the Middle East. The energy revolution of the 21st century isn’t about solar energy or wind power and the “scramble for oil” isn’t going to drive global politics. The energy abundance that helped propel the United States to global leadership in the 19th and 2oth centuries is back; if the energy revolution now taking shape lives up to its full potential, we are headed into a new century in which the location of the world’s energy resources and the structure of the world’s energy trade support American affluence at home and power abroad.

By some estimates, the United States has more oil than Saudi Arabia, Iraq and Iran combined, and Canada may have even more than the United States. A GAO report released last May (pdf link can be found here) estimates that up to the equivalent of 3 trillion barrels of shale oil may lie in just one of the major potential US energy production sites. If half of this oil is recoverable, US reserves in this one deposit are roughly equal to the known reserves of the rest of the world combined.

Edward Luce, an FT writer usually more given to tracing America’s decline than to promoting its prospects, cites estimates that as early as 2020 the US may be producing more oil than Saudi Arabia.

So dramatic are America’s finds, analysts talk of the US turning into the world’s new Saudi Arabia by 2020, with up to 15m barrels a day of liquid energy production (against the desert kingdom’s 11m b/d this year). Most of the credit goes to private sector innovators, who took their cue from the high oil prices in the last decade to devise ways of tapping previously uneconomic underground reserves of “tight oil” and shale gas. And some of it is down to plain luck. Far from reaching its final frontier, America has discovered new ones under the ground.

Additionally, our natural gas reserves are so large that the US is likely to become a major exporter, and US domestic supplies for hydrocarbon fuels of all types appear to be safe and secure for the foreseeable future. North America as a whole has the potential to be a major exporter of fossil fuels for decades and even generations to come.

Since the 1970s, pessimism about America’s energy future has been one of the cornerstones on which the decline theorists erected their castles of doom; we are now entering a time when energy abundance will be an argument for continued American dynamism.

The energy revolution isn’t a magic wand that can make all America’s wishes come true, but it is a powerful wind in the sails of both America’s domestic economy and of its international goals. The United States isn’t the only big winner of the energy revolution — Canada, Israel and China among others will also make gains — but the likely consequences of the energy revolution for America’s global agenda are so large, that the chief effect of the revolution is likely to be its role in shoring up the foundations of the American-led world order.

I will look at the global consequences for geopolitics and the environment in some upcoming posts, but first things come first and I’d like to look at the domestic consequences of the boom before moving on to its impact on the world.

Domestically, the energy bonanza changes the American outlook far more dramatically than most people yet realize. This is a Big One, a game changer, and it will likely be a major factor in propelling the United States to the next (and still unknown) stage of development — towards the next incarnation of the American Dream.

The energy revolution is first and foremost a revolution that affects jobs. We are in the very early stages, but since the financial crisis of 2008, fracking alone has created something like 600,000 new jobs in the United States, says the FT. Throw in more jobs in both extracting and refining the new energy wealth, and add the manufacturing and processing industries that will return to US shores to benefit from cheap, secure and abundant energy and feedstock, and it is clear that the energy revolution will be a jobs revolution.

These jobs pay well; for the first time in a generation we are looking at substantial growth of high-income jobs for skilled blue collar workers. Some of these jobs, especially with overtime, will pay in the six figures; most offer wages well above the national blue collar average.

The boom has the potential to change the debate over immigration. The best blue collar jobs in the new oil and gas patches will demand workers with good English language skills and some technical background — good junior colleges and strong vocational high schools will prepare workers for these new jobs. Low skilled, non-English speaking workers will have a hard time competing for these jobs but will work instead in less well paid jobs servicing the energy sector and its workers. They will build houses for the oil workers to live in and staff the restaurants where they eat. As more blue collar native-born Americans see their living standards rise, it is likely that (legal) immigration will lose some of its political salience.

Towards A New Geography of Power?

There’s another advantage: these jobs will mostly be located away from the coasts. The hollowing out of Middle America has been one of the tragedies of the last generation. Looking at the depopulation of the northern Great Plains, planners began to speculate about returning large chunks of whole states to the wild: the “Buffalo Commons” idea that would have taken up to 20 million acres out of private hands. The buffalo will have to move over now for the oil rigs and the people who work them; North Dakota will not be reverting to the wild anytime soon.

But there are large oil and/or gas reserves in other downtrodden areas. Western New York State and much of Pennsylvania and Ohio appear to have commercial quantities of fossil fuel. The revival of the Rustbelt may be getting under way. And Dixie will not lose out: the US share of the Gulf of Mexico is now believed to have the potential to produce 2 to 3 million more barrels per day than the 1.2 million that it currently pumps.

Overall, the new energy geography points toward a revival of the Mississippi-Ohio-Missouri river system as the axis of American growth. That’s likely among other things to be good for America’s political climate; the Midwest has traditionally been something of a swing region — less liberal than the coastal northeast and less aggressively conservative than Dixie. Middle Westerners have tended to be pragmatic optimists over time, and it would be interesting to see how a revival of this political tendency would work out in our politics today. In any case, we may be looking at a decline in the power of the northeast and (unless California embraces its inner tycoon and begins to exploit its own energy riches) the Pacific, while Dixie continues current rates of growth and the Middle West booms.

Energy frontiers tend to be individualistic places. Canada, where the oil boom is a few years ahead of the US, has shifted to the right as power and money flow from blue Ontario and Quebec to Alberta. Prosperous blue collar workers and aspiring oil tycoons are not generally the strongest supporters of expensive welfare states, and American greens are already feeling the political consequences of a newly energized hydrocarbon sector. They are also not very interested in subsidizing the fiscal problems of other states; should California’s woes worsen and the state come to Washington for more help, the energy rich states and their representatives are likely to take a hard, skeptical look at its requests.

Even so, the Middle West’s traditional moderation is going to soften the rough edges a bit; much of the oil is coming to places where people historically have valued community ties and concerned themselves about the well being of the less fortunate. This won’t be the second coming of Ayn Rand.

Heartland Economics

There are significant economic benefits in having all this prosperity in the heartland. North Dakota and Wyoming are states where shipping costs from China and Japan are high — but Chicago and St. Louis are much better placed to serve them. Put cheap and secure energy in the Middle West, and build large new cities and centers of economic demand in the neighborhood, and the energy revival in a few states will support general economic growth in many more.

The long term outlook for the dollar and even for the federal government’s accounts will also improve. Even quite recently people assessing the long term health of the United States pointed toward inexorably rising energy imports as an important drain on the balance of trade and on the health of the dollar. But oil imports are going to decline, and exports — especially of natural gas — will help offset them. The federal government is also going to be collecting taxes on the new energy production — and on all the incomes of the individuals and companies involved, directly or indirectly, in the new energy boom.

The United States will be a more attractive place for foreign investment. Building the infrastructure required to get the new energy industry up and running and to transport its products to the market offers some very profitable and secure investment opportunities. And with the US much less dependent on foreign oil (and with the foreign oil it does need coming largely from Canada), the US economy will be much less exposed to the risks associated with turmoil in the Middle East. That is the kind of thing investors look for: high growth in safe places.

Few places are going to look more secure in the 21st century than America between the Rockies and the Appalachians, between the Gulf of Mexico and the Canadian frontier. Some of the world’s largest energy reserves will be sited next to the world’s most fertile crop land. Geopolitically, few places on earth are as secure from war; politically few can match its record of stable governance; legally, few offer as much protection for property rights and few have as long a record of offering foreign investors the equal protection of the law.

Avoiding the Pitfalls

Every silver lining has a cloud, and the energy bonanza isn’t all good. We will have to watch out, for example, that the hydrocarbon boost to the dollar doesn’t price American manufacturing goods out of world markets. Here we will need to look at Europe, and see how some countries — like Germany — responded in a more disciplined way through the years when the euro was high to reduce costs and improve quality so that German goods remained internationally competitive.

We will also have to work to keep the political classes from distributing the oil wealth to the rent-seekers. We don’t want to be either the Nigeria or the Russia of the new century, in which corrupt rent-seeking elites hijacked the political process and appropriated the lions’ share of the hydrocarbon wealth to themselves. Cheap, attractive subsidies for the masses, while the real wealth goes into the Swiss bank accounts of the well connected and the unscrupulous: that could very well happen here and there are plenty of people in leading positions in American life — in both parties — who stand willing and ready to sequester the loot.

But the first great wave of oil discoveries did not turn America into a corrupt petrostate when the oil discoveries of the late 19th and early 20th centuries made the US the world’s greatest producer of fossil fuels. One important reason that still holds true today is that the US economy was so diversified and so high tech (by the standards of the day) that the oil tsunami was only one part of a much larger story of innovation and development.

Innovation remains a big part of the American energy picture. The United States has very large reserves of these new fuels, but we are not alone on the planet in having this wealth. But America is getting to the energy revolution early because our oil companies and drillers were ahead of other people in developing the technologies that can bring the new resources on line. We don’t just happen — like the Saudis and others — to be sitting on incredibly large pools of oil which the skills of other people discover and pump out of the ground. We haven’t exactly made our own luck, but we’ve made the discoveries that enabled us to take advantage of it.

That spirit of innovation and the culture that supports it are the true sources of American wealth. That is how we found oil in the first place and built our first energy economy; it is what enables us to benefit from these additional reserves — and it is what will get us on to the next thing when the new energy sources begin to run dry.

Thankfully, the United States is not a Russia or a Nigeria. Our economy and our political system are strong enough and diverse enough to benefit from an energy boom without being overwhelmed by it. The energy boom will stimulate the development of new technologies and new products in the non-energy sectors and will likely to usher in an era of broad prosperity and social advance across many industries and regions rather than just in a few.

Nature — or perhaps Nature’s God — seems to love mocking pundits. Just when the entire punditocracy, it sometimes seemed, had bought into the “American decline” meme, Europe collapsed and huge energy reserves were discovered underneath the United States. The “special providence” that observers have from time to time discerned in America’s progress through history doesn’t seem to be quite finished with us yet.

Getting the new oil and gas raises complicated technical and environmental issues, and it may take some time before the dust settles and we understand exactly what we are looking at here. And drilling is a notoriously uncertain business. The energy revolution may fall short of the full hopes it stirs up. Yet the rapid progress of extraction technology is making these unconventional reserves look more real and more ‘gettable’ all the time. Rather than coping gracefully with the consequences of inevitable decline, America’s job in the 21st century looks like handling its new set of opportunities wisely and well.

The flow of money, power and people into the "Red" American heartland will probably be the biggest social and political change, just like it was here in Canada, and the "Blue" elites and power brokers on the coasts won't like it a bit (also similar to the tantrum the old power elites in the Toronto-Montreal corridor have been reacting in Canada).

 

[exabedtech]

" North America as a whole has the potential to be a major exporter of fossil fuels for decades and even generations to come."  An interesting line to include in an article overflowing with confidence.
Yes, we really should just stick to business as usual and burn that stuff up as fast as we can pump it if we have DECADES worth of it!!

Even if we accept the numbers which seem to be randomly trotted out ie 3 trillion barrels with 1/2 recoverable, we currently use around 85 million barrels a day on this planet.  So, by fraking until we have no usable groundwater (come out to my place if you need evidence) and building a few dozen upgraders, we could keep on happily polluting ourselves to death for another 50 years!!!  That's just AWESOME!

Yes, lets just pass this problem on to the next generation.  I'm sure they'll come up with something...

 

[a_majoor]

The laws of physics are rigorously enforced in all times and places, which should go a long way to explaining why green fantasies of wind and solar power make such a tiny portion of the global energy picture, or battery powered cars simply cannot compete with fossil fueled cars (switching to non Carnot cycle systems like SOFC fuel cells would simply tilt the balance still further to hydrocarbon energy).

So unless you can point to some competitive alternate system of energy storage and production, or choose to drop out of the modern economy completely (and by that I mean adopt a Neolithic hunter gatherer lifestyle) you really have no way of changing the modern economy, or to avoid benefiting from the availability of cheap energy.

We have literally pages and pages of alternative schemes right here, and the one common denominator of all of them is they don't produce net energy at anything like a competitive price. I might not like this either, but this is the way of things.

 

[exabedtech]

The laws of physics are rigorously enforced in all times and places, which should go a long way to explaining why green fantasies of wind and solar power make such a tiny portion of the global energy picture, or battery powered cars simply cannot compete with fossil fueled cars (switching to non Carnot cycle systems like SOFC fuel cells would simply tilt the balance still further to hydrocarbon energy).

So unless you can point to some competitive alternate system of energy storage and production, or choose to drop out of the modern economy completely (and by that I mean adopt a Neolithic hunter gatherer lifestyle) you really have no way of changing the modern economy, or to avoid benefiting from the availability of cheap energy.

We have literally pages and pages of alternative schemes right here, and the one common denominator of all of them is they don't produce net energy at anything like a competitive price. I might not like this either, but this is the way of things.

That is exactly my point.  We are tied to fossil fuels, have no viable alternatives and that resource is in decline.  Yes, we do find more of it, but the planet isnt making more of it, therefore it can only be in decline.  It's a mathematical certainty that most of us choose to ignore because we're old enough to be dead before it the shit hits the fan.
I don't have a solution, neither does anyone else as far as I can tell and THAT is the problem. 
I often hear the argument that "the stone age didnt end for lack of stones", the implication being that we will magically invent something new and unheard of before it becomes a problem.  That really is the equivalent of buying lottery tickets as a retirement plan except that in the case of energy, we arent even buying the tickets.

 

[a_majoor]

I might point out that the British were experiencing "Peak wood" in the 1600's (wood may be renewable but not in a human lifetime), but found a substitute in coal, and whale oil was displaced in the 1860's by petrolium. It is possible for petrolium to be displaced by nuclear fission (and has been for a while) except that regulatory burdens and hysterical "anti nuclear" activists have stalled that technology.

Nuclear fusion may be the next enabling technology, but to date has not broken even (although a croop of small private ventures have managed to reach the same point the massively funded government projects have reached using a series of different technologies).

There may be a way to displace oil, but until then we should intelligently use the resources we do have (an impoverished Earth will not be able to afford to do energy research).